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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A-1
| (Mark One) | |
| /x/ |
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 FOR THE QUARTERLY PERIOD ENDED JANUARY 31, 2000 |
or
| / / | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934. |
Commission file number 0-2816
| METHODE ELECTRONICS, INC. (Exact name of registrant as specified in its charter.) |
||
| Delaware |
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36-2090085 |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) | |
| 7444 West Wilson Avenue, Harwood Heights, Illinois (Address of principal executive offices) |
|
60656 (Zip Code) |
(Registrant's telephone number, including area code) (708) 867-9600
None
(Former name, former address, former fiscal year, if changed since last report)
At March 10, 2000, Registrant had 34,422,483 shares of Class A Common Stock and 1,147,860 shares of Class B Common Stock outstanding.
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such report(s)), and (2) has been subject to such filing requirements for the past 90 days.
Yes /x/ No / /
2. MANAGEMENT'S DISCUSSION AND ANALYSIS
Results of Operations
Consolidated net sales for the third quarter of fiscal 2000 increased 6% to $102,023,000 from $96,387,000 a year ago. Consolidated net sales for the nine-month period ended January 31, 2000 increased 4% over the same period a year ago to $304,990,000 from $292,224,000.
Sales of the Electronic segment represented 74% of consolidated sales in the third quarter and first nine months of fiscal 2000 compared with 79% in both periods of fiscal 1999. Electronic segment sales decreased 1% during the quarter from the prior year third quarter and 2% for the nine-month period compared to last year. Sales to the automotive industry increased 4% in the third quarter and were up 6% for the nine-month period compared to the comparable periods last year. Sales to the automotive industry represented 68% of Electronic segment sales in the quarter and the nine-month period compared with 64% and 63% in the comparable periods last year. Sales of the dataMate and various other electrical and electronic connector and cable assembly product lines were off 10% for the quarter and 15% for the nine-month period compared to the prior year.
Sales of the Optical segment represented 21% of consolidated sales in the third quarter and 19% in the first nine months of fiscal 2000 compared with 14% and 13% in the comparable periods of fiscal 1999. Optical segment sales increased 62% and 48% in the third quarter and nine-month period compared with the prior year comparable periods. Sales of optical transceivers increased about 120% for the quarter and 71% for the nine-month period compared to last year. Sales of optical transceivers represented 60% and 59% of Optical segment sales in the quarter and nine-month period ended January 31, 2000 compared to 44% and 51% in the prior year.
Sales of Other products (chiefly current carrying devices and printed circuit boards) decreased 26% in the current quarter and 11% for the nine-month period compared with last year due to the closing of the Company's printed circuit and related businesses at the end of September 1999. Last year this segment included sales of the closed businesses of $3,277,000 and $10,753,000 in the third quarter and nine-month period compared to none in the current quarter and $4,950,000 in the current nine-month period.
Other income consisted primarily of earnings from the Company's automotive joint venture, interest income from short-term investments, royalties and license fees. The increase in fiscal 2000 was largely due to $1,163,000 of income related to the licensing program of the Company's optoelectronic patent portfolio.
Cost of products sold as a percentage of sales for the third quarter increased to 76.5% compared with the year-ago period of 75.7%. For the nine-month period ended January 31, 2000 this percentage increased to 76.2% from 75.1% for the same period last year. Gross margins declined as the result of continued difficulties with the consolidation and reorganization of two electrical cable assembly operations and sales volume declines in dataMate products and at our Singapore connector operation. Gross margins for the nine-month period also were adversely affected by the winding-down of the printed circuit businesses.
Selling and administrative expenses as a percentage of sales were 13.5% and 14.6% in the current quarter and nine-month period of fiscal 2000, compared with 13.9% and 13.5% for the comparable periods last year. During the second quarter of 2000 the Company recorded a $3,000,000 provision for bad debts relating to the bankruptcy of an automotive sub-contractor, a relationship directed by a large OEM customer. Excluding this special charge, selling and administrative expenses for the nine-month period were comparable to last year.
The effective tax rate was 35.5% in the third quarter and 35.3% for the nine-month period of fiscal 2000 compared with 34.5% in both the third quarter and nine-month period of fiscal 1999. Lower tax rates on results from foreign operations reduce the Company's effective tax rate below the combined statutory federal and state income tax rate.
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Financial Conditions, Liquidity and Capital Resources
Net cash provided by operating activities was $41,830,000 in the first nine months of fiscal 2000, up substantially from the $22,890,000 provided during the year-ago period. The increase in cash provided was chiefly due to accelerated collection of accounts receivable that included substantial amounts related to automotive tooling programs.
Depreciation and amortization expense was $14,433,000 in fiscal 2000 compared with $14,028,000 in fiscal 1999, with capital additions of $19,715,000 and $15,510,000, respectively. Fiscal 2000 capital additions include the purchase of a 15,000 square foot clean room oriented facility to house the Company's Methode Communication Modules subsidiary. It is presently expected that fixed asset additions for fiscal 2000 will approach $27,000,000 and will be financed with internally generated funds.
During the third quarter of fiscal 2000, the Company purchased selected assets of Spire Corporation's optoelectronic business segment for cash of approximately $13,000,000. This acquisition provides the Company with established capabilities in research and development into formulating optoelectronically active semiconductors for expanded bandwidth applications. This acquisition was funded by internally generated funds.
On February 23, 2000 the Company announced its intention to carve out a portion of its Optical segment into a new publicly traded company. It is expected that the new optical products company will offer approximately 15% of its Common Stock in an initial public offering during the first half of fiscal 2001. Methode expects to distribute the remaining shares to its stockholders in a tax-free transaction at a later date. The Company intends to accomplish significant business objectives through the initial public offering and spin-off. Although the intended use of proceeds will not be finalized for some time, Methode believes that the new optical products company will receive the majority if not all of the proceeds if the public offering is completed.
An initial public offering of the common stock of the new optical products company is subject to, among other things, the development of definitive separation agreements, the preparation and filing of a registration statement with the Securities and Exchange Commission and market conditions. The spin-off will be subject to, among other things, the receipt of a favorable Internal Revenue Service ruling that the separation will be tax-free to Methode and its stockholders for U.S. federal income tax purposes. No offer of securities in the new optical products company will be made except by means of a prospectus. While an initial public offering of common stock of the new optical products company is planned for the first half of fiscal 2001 and a spin-off at a later date, it should be noted that due to numerous uncertainties involved in these matters, there can be no assurances that an initial public offering or full separation will be completed as described or within the time periods outlined above.
Impact of Year 2000
In prior years, the Company discussed the nature and progress of its plans to become Year 2000 ready. In late calendar 1999, the Company completed its remediation and testing of systems. As a result of those planning and implementation efforts, the Company experienced no significant disruptions in mission critical information technology and non-information technology systems and believes those systems successfully responded to the Year 2000 date change. The Company expensed approximately $500,000 in connection with remediating its systems. The Company is not aware of any material problems resulting from Year 2000 issues, either with its products, its internal systems, or the products and services of third parties. The Company will continue to monitor its mission critical computer applications and those of its suppliers and vendors throughout the year 2000 to ensure that any latent Year 2000 matters that may arise are addressed promptly.
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Euro Conversion
On January 1, 1999, eleven member countries of the European Union established fixed conversion rates between their existing currencies ("legal currencies") and one common currency, the Euro. The Euro is now trading on currency exchanges and may be used in certain transactions such as electronic payments. Beginning in January 2002, new Euro-denominated notes and coins will be used, and legacy currencies will be withdrawn from circulation. The conversion to the Euro has eliminated currency exchange rate risk for transactions between the member countries, which for the Company primarily consists of sales to certain customers and payments to certain suppliers. The Company is currently addressing the issues involved with the new currency, which include converting information technology systems, recalculating currency risk, and revising processes for preparing accounting and taxation records. Based on the work completed so far, the Company does not believe the Euro conversion will have a significant impact on the results of its operations or cash flows.
Cautionary Statement
Certain statements in this report are forward-looking statements that are subject to certain risks and uncertainties. The Company's business is highly dependent upon specific makes and models of automobiles. Therefore, the Company's financial results will be subject to many of the same risks that apply to the automotive industry, such as general economic conditions, interest rates and consumer spending patterns. A significant portion of the balance of the Company's business relates to the computer and telecommunication industries which are subject to many of the same risks facing the automotive industry as well as fast-moving technological change. Other factors which may result in materially different results for future periods include actual growth in the Company's various markets; operating costs; currency exchange rates and devaluations; delays in development, production and marketing of new products; and other factors set forth from time to time in the Company's Form 10-K and other reports filed with the Securities and Exchange Commission. Any of these factors could cause the Company's actual results to differ materially from those described in the forward-looking statements. The forward-looking statements in this report are intended to be subject to the safe harbor protection provided under the securities law.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
| METHODE ELECTRONICS, INC. | ||||
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By: |
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/s/ KEVIN J. HAYES Kevin J. Hayes Chief Financial Officer |
Dated: March 16, 2000
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